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business revision. unit 3 > understanding personal finance > Flashcards

understanding personal finance Flashcards

1
Q

what is money?

A

a commonly accepted means of exchange for goods and services.

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2
Q

what are the functions of money?

A

unit of account
means of exchange
store of value
legal tender

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3
Q

what is a unit of account?

A

money acts as the common base of comparison that people use to present prices and record debts.
provides a value by which we can value different goods and services.

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4
Q

what is means of exchange?

A

allows people to buy goods and services.

money enables goods and services to be exchange

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5
Q

what is a strore of value?

A

money acts as a store of value over time

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6
Q

what is a legal tender?

A

money is legally recognised by all as a payment method for goods and services.

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7
Q

what are interest rates?

A

the cost of borrowing or the reward for saving. if interest rates rise, savers will benefit and recieve a greater reward.

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8
Q

what is debt?

A

debt is when expenditure is higher than income.

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9
Q

ways to control costs

A

avoid high interest repayments or fines from going into overdraft

setting budgets

shop around for the best deals

plan in advance to save money

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10
Q

reasons to avoid legal action or repossession

A

damage yor reputation

expensive

negative effect on your credit score, affecting the ability to gai finace in the future

loans can be taken out against an asset that belongs to you i.e. repossess assets from you until you make payments

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11
Q

reasons/ways to remian solvent

A

solvent means to be able to meet your debts

maintain ability to pay your daily/weekly bills

have a reasonsable lifestyle

if a person is not sovent and a creditor calls to inform them of debt, then they would have to sell their assets

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12
Q

reasons to maintain a good creit score

A

when a person applys for a bank loan or usage of hire purchase to purchase something, the creditor will assess your credit score.

this assesses how likely you will be able to repay the debt

good credit score means you will be able to pay of debts

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13
Q

reasons to avoid bankcruptcy

A

bankcruptcy is when an individual legally declares themselves as unable to repay their debts
affects future credit score
damage your reputation

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14
Q

ways to generate income and savings

A

interest paid on savings and therefore generates income, the size of the savings therefore increase.

money can be invested to generate more income, such as buying shares.

income may be invested in assets that will appreciate in value over time.

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15
Q

features of money

A

money can be saved as insurance

being able to replace lost items

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16
Q

what is inflation?

A

inflation is the general rise in prices.

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17
Q

methods of payment

A

cash

debit card

credit card

electronic transfer

cheques

standing order

direct debit

pre-paid cards

contactless cards

charge cards

store cards

mobile banking

bankers automated clearing services (BACS)

clearing house automated payment system (CHAPS)

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18
Q

what is a debit card?

A

bank provided cards to allow customers to withdraw money from their current accounts or make puchases with the money coming from the current account.

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19
Q

advantages of debit cards

A

widely accepted

allows cash to be withdrawn

convenient as can withdraw cash from various places

can make contacless payments up to £100

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20
Q

disadvantages of debit cards

A

need to monitor spending as overspending could be costly

risk of fraud

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21
Q

what is a credit card?

A

customers can make purchases on these cards and pay the balance at a later date

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22
Q

advantages of credit cards

A

allows you to spread payment

flexible from some providers such as 0% interest free

widely accepted

depending on the provider, additional benefits such as rewards or insurance

contacless payments is up to £100

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23
Q

disadvantages of credit cards

A

easy to develop large amounts of debt

interest charges may apply and can quickly accumulate outstanding balances

high charges if you withdraw cash

can encourage over spending

risk of fraudulent behaviour

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24
Q

what are cheques?

A

a paper transaction giving bank permission to transfer payment from your account to another account

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25
Q

advantages of cheques

A

saves having to carry around cash

can be used to pay people large sums of money

payments can be controlled

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26
Q

disadvantages of cheques

A

some businesses no longer accepts cheques

may be charged for each cheque

payment will not be accepted if a customer has insufficient funds.

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27
Q

what is an electronic transfer?

A

payments made from one person’s bank to another via online.

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28
Q

advantages of electronic transfer

A

recipient can receive funds quicker

immediate confirmation of money sent

safer than withdrawing cash

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29
Q

disadvantages of electronic transfer

A

can be difficult to reverse if enter incorrect account details or funds

relies on the wesite to be up

needs to be carefully set up to ensure the tansfer goes to the right place

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30
Q

what is direct debit?

A

permission for the bank to make regular payments to a third party upon request

amount taken from the bank account may vary

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31
Q

advantages of dircet debit

A

ensures regualr payments are not missed

can save money if providers offer a discount

varied amounts can be taken from the account

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32
Q

disadvantages of direct debit

A

you have to make sure there is enough money in your account

amount taken will vary making budgeting difficult

need to reset if bank details change, otherwise important payments may be missed

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33
Q

what is standing order?

A

permission given to the bank to make regular payments, of a set amount to a third party upon request.

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34
Q

advantages of standing order

A

bills are paid automatically

can be cancelled at any time

secure method of payment

ensures regular payments are not missed

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35
Q

disadvantages of standing order

A

money is taken out of your bank account regardless of the balance, therefore could lead to debt

must be reset or cancelled to make any changes

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36
Q

what is a pre-paid card?

A

a cash balance is held on a card, which then reduces each time it is used

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37
Q

advantages of pre-paid cards

A

helps individuals stick to a budget as can only spend up to the amount uploaded

can be cancelled if lost

useful for holidays or children as they stick to budget

widely accepted

38
Q

disadvantages of pre-paid cards

A

can be difficult to monitor balance

if card is cancelled or lost, money cannot be covered

can be used by others without permission

may invovle a fee to purchase the card

39
Q

what is charge cards?

A

allows for purchases to be paid on credit but the total amount is automatically paid direct from a bank account

40
Q

advantages of charge cards

A

short term source of credit

can stop users racking up large sums of debts

secure method of payment

41
Q

disadvantages of charge cards

A

must pay the statement balance in full when it is issued regardless of funds

may inncur annual or monthly fees

42
Q

what is store cards?

A

allows a customer to buy on credit in a particular store or group of stores e.g. Argos

43
Q

advantages of store cards

A

may recieve additional benefits from the store such as discounts

can chose how much to pay each month

spread the cost over time

short term source of credit

44
Q

disadvantages of store cards

A

only accepted by that specific store

customers could be tempeted to over spends to get special offers

if balance is not payed off within a specific period, interest is applied

may encourage debt

45
Q

what is mobile banking?

A

service which allow customers to complete banking on their mobile phones or other portable devices

46
Q

advantages of mobile banking

A

quick and easy to use as theres no need to visit branches

secure

47
Q

disadvanatges of mobile banking

A

doesnt have the same amount of features as internet banking

relies upon the customer having a device

48
Q

what is BACS?

A

allows transfer of payments from one bank account directly to another within 2 hours or quicker

49
Q

advantages of BACS

A

transfers completed normally within 2 hours

individual can complete transaction via phones, branches or inline backing accounts

covenient as thers no need to handle cash, make calls or write cheques.

details can be set up for frequent transfers, speeding up the process

50
Q

disadvanatges of BACS

A

service cannot be offered by all banks

may incur additional costs

care must be taken that all details are correct

some banks put limits on the amount that can be transferred

51
Q

what is CHAPS?

A

clearing house automated payment system is same day transfer of funds, of any amount, from one bank account to another.

52
Q

advantages of CHAPS

A

no limits on amounts that you wisj to transfer

some banks apply a daily limit for when transactions must be completed by

53
Q

disadvantages of CHAPS

A

some banks charge to use this service

54
Q

what is a current account?

A

a type of account offered by banks and building societies for frequent use in cluding deposits and withdrawls.
there are differnt types of current accounts:
standard
packaged, premium
basic
student

55
Q

what is a standard account?

A

the most common account for individuals assuming they have an OK credit score
these pay and charges interest depending upon whether the balance is positive or negative
these come with cheque books and credit cards

56
Q

advantages of student accounts

A 
widely accepted
overdraft facility is offered
range of services
can set up direct debits and stnading orders
can make cash withdrawls
57
Q

disadvantages of student accounts

A

limited additional benefits

charges on oberdraft, bounced cheques can be high

58
Q

what is a packed/premium accounts?

A

a type of account that offers the same features as the standard account, but comes with more features such as car breakdown cover.
comes with a cheque book and debit card
overdraft limit, interest charges and payments

59
Q

advantages of packaged/premium accounts

A

range of services
additional benefits
ease of coordinating different aspects of personal finance e.g. insurance is added so you dont have to shop around separately

60
Q

disadvantages of premium/packaged accounts

A

often charges additional fees

generic rather than tailored to individual needs e.g. travel insurance may be of no added benefit

61
Q

what is a basic current account?

A

a type of account, with limited features, that is designed for high risk customers, who would struggle to open an account due to low credit score

62
Q

advantages of basic current accounts

A

an opotunity to open an account for those who may otherwise struggle to be accepted by a financial institution.

63
Q

disadvantages of basic current accounts

A

limited services

carry’s embarrasment

64
Q

what is a student current account?

A

a type of account designed to meet specific demands of students

65
Q

advantages of student current accounts

A

meets needs of students

additional perks such as discounts on books

understands the timing of student cashflow

66
Q

disadvantages of student current accounts

A

will need to transfer account after graduation

charges on overdraft, bounced cheques and others could be high

67
Q

what is an overdraft?

A

the facility to overspend on a current account up to an agreed sum. an individual can withdraw money, which is not there, from bank accounts. however, interest is charged on overdraft.

68
Q

advantages of an overdraft

A

only borrowed when required, allowing flexibility

only pay for the money borrowed

quick

69
Q

disadvantages of an overdraft

A

the bank can call it in at any time

only available from a current bank account

interest payments tend to be variable making it more difficult to budget

banks may secure the overdraft against an asset

70
Q

what is a personal loan?

A

a set amount of money provided to an individual or couple for a specific purpose and is to be repayed with interest. this may be secured against an asset.

71
Q

advanatges of personal loans

A

receive an immediate cash injection, which could be portentially large

quick to set up

72
Q

disadvantages of personal loans

A

interest may be high

interest must be paid off

can be charged for early payments

if charged, assets could be taken away

73
Q

what is a hire purchase?

A

spreading the cost of a purchase over a pre- agreed period of time. the customer will receive the item straight away and pays in monthly instalments.

74
Q

advantages of hire purchase

A

the customer gets to use the item immediately

spreads the cost over time

fixed installments

75
Q

disadvantages of hire purchase

A

interest rates may be high

payments must be made regularly or item will be repossessed

76
Q

what is a mortgage?

A

a long term loan to fund the purchase of an expensive item such as a house

77
Q

advantages of a motgage

A

makes it possible to buy expensive items

spreads the cost over a long period of time

78
Q

disadvantages of a martgage

A

interest rates may be high

may not receive a mortgage

normally require a deposit of 20% of the items price

risks of repossession if payments are not substantial

79
Q

what is a payday loan?

A

a short term loan, for a small amount of money, which is repaid upon the customers next income

80
Q

advantages of payday loans

A

solves short term cashflow problems

quick access to funds

81
Q

diadvanatges of payday loans

A

high rates of interest

need to be repaid quickly

can escalate out of control if payments are not made

82
Q

what is individual savings account (ISA)?

A

a savings account that does not charge tax on interest earned

83
Q

advantages of ISA’s

A

banks will pay interest on balance

84
Q

disadvantages of ISA’s

A

charged to withdraw savings

85
Q

what is a deposit and savings account?

A

accounts held with banks or building societies where intrest is paid on positive balances

86
Q

advantages of deposit and savings account

A

the value of savings will increase, assuming withdrawals are not made, as a result of interest received

high interest rates receieved in favour

87
Q

disadvantages of deposit and savings account

A

penalise savers for taken out money early

funds cannot be withdrawn immediately

88
Q

what is premium bonds?

A

a government incentive for individuals to save by which savings are entered into a monthly prize draw

89
Q

what is bonds and gilts?

A

individuals or companies lend money to the governmentin return for an IOU
fixed rates of interest is paid on the loan

90
Q

what are shares?

A

shares are investments made when individuals or organisations become part owners of a business

shareholders are to receive income in the form of dividends paid from company profits as well as to gainwealth as share prices increase.

91
Q

what is a pension?

A

savings plan by which the individual makes regular contributions to a pension policy

the objective is to plan for the future so that an income is available upon retirement

92
Q

which is more of a higher risk?

savings or investment

A

investments as the money could be lost

business revision. unit 3 (17 decks)

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